Cambridge International as and a level Economics Ebook

1
Elaborate the reasons given for the growth of small 
fi rms in the Pakistan pharmaceutical industry.
2
What obstacles might small pharmaceutical fi rms 
face when trying to grow?
175
Chapter 7: The price system and the microeconomy 

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Bosch and Tata Group. Th
e latter which is Indian owned 
has extensive business interests in steel production, 
vehicle manufacturing, tea growing and packing and 
luxury hotels. 
Integration
In general terms, integration refers to the ways in which 
the individual parts of, say, a business have come together. 
Th
is could be through:
■ 
a merger whereby two firms agree to join up with each other
■ 
acquisition or purchase whereby one firm takes over control 
of another.
Th
e various forms of integration are shown in
 Figure 7.22
.
Horizontal integration
is a process or strategy used 
by fi rms to strengthen their position in an industry. It 
involves the merger or acquisition of a business that is 
in the same sector of an industry. Typical examples are 
United Airlines’ merger with Continental (see Self-
assessment task 7.12), Kraft Foods taking over Cadbury 
in the UK and Mittel Steel’s purchase of Arcelor, in 
Spain, France and Luxembourg. In such cases, the 
outcome is one of consolidation; an oligopoly or even 
a monopoly is likely. Th
e prime motive for this growth 
is to reap the benefi ts of economies of scale. Research 
and development costs can be pooled, production plants 
can be rationalised, marketing costs reduced and so 
on. Horizontal integration can also lead to access to 
new markets, increased market power and, by reducing 
competition, the opportunity to make abnormal profi ts. 
Th
e danger is that this sort of growth may sometimes 
be blocked by governments who are concerned about 
possible monopoly abuse.